Consumer Expectations to Cause Disruption in Building Design, Management

What’s wrong with the commercial and corporate real estate industry? Why isn’t it adopting technology innovation at the same pace as other industries?

Think about buying an airline ticket 10 or 15 years ago. You had to get a paper ticket from a travel agent, who was paid typically 7% to 14% of the ticket price just for processing the transaction and booking the reservation on an antiquated computer ticketing system. Now think about that process today: you seamlessly book your own ticket on the airline website, pick your own seat, download the boarding pass and then put your smartphone under a scanner at security and at the boarding gate. And when was the last time you visited a travel agent?

Now think of all the other huge industries that have been disrupted by technology in the past 10-15 years for example: banking, retail, media and music. All of these industries are predominantly online businesses that can be now accessed from any mobile device and with automated payment models.

If we now pause and contemplate the experience of owning, managing or occupying a commercial office building in the past decade or so, we need to ask ourselves, “What has really changed in the past 10-15 years and how has the internet or emerging technologies changed these businesses?” and the answer is, “Not much.” If an office worker were to time travel back to 1998, she might notice few real changes except for the increase in Internet connectivity, the rise of laptop/portable computing and the widespread use of mobile phones, and she would still be using a desktop version of Microsoft Outlook, Word, PowerPoint and Excel!

We believe that this glacial pace of change is about to undergo massive acceleration due to a number of external industry factors that are creating the perfect environment for an era of change in building design, operations and management.

In 2013, we now believe the timing is right and there are a number of driving factors that we believe are pushing us into that perfect storm; a confluence big enough to finally cause some disruption in this very traditional and complex market. These driving factors include:

Rising User Expectations: With increasing consumer familiarization with mobile technology and the expectation for instant access to all types of information, we are beginning to see demands for building data in ways that are likely to significantly disrupt the industry.

Real-time Data – Technology is enabling “real time” data collection and the ability for to be analyzed, monitored and displayed in ways never before thought possible.

Mobility – This year the volume of Internet traffic accessed by mobile devices is going to outstrip conventional desktop means. The power of information access is now firmly in everyone’s pocket, and it’s mobile.

Always accessible – It used to be that only offices could afford decent Internet connections, now almost the opposite is true: Internet cafes, home connections and even airplanes are offering coverage and decent bandwidths that are blanketing every location imaginable. Offices have to accept and accommodate the mobile, always on, workforce.

Cloud and development technologies – Along with increases in bandwidth, the maturation of software development tools such as HTML5 enables full browser-based functionality, equivalent to native installed applications.

Stakeholder Expectations – Changing expectations for new technology among both occupants/tenants and owners/managers are forcing us to look for new innovative and market-differentiating solutions. The next generation won’t put up with lack of access to information and failure to use current technology to monitor, control and report on building operations.

Efficiency – There are new economic and financial requirements for greater efficiency in building operations and greater transparency regarding energy and water use. Investors and insurers are demanding greater efficiencies in energy and water use, as well as certification and compliance with green building and energy efficiency certifications.

Disclosure Requirements – Increasingly, many tenants are demanding transparency about the performance of the buildings they are contemplating signing up to for long term leases. This in turn is driving owners to also want to know what’s going on in their buildings because it’s going to affect tenant costs and ultimately the value and commercial attractiveness of their buildings.

So what are the factors holding the real estate industry back? There are still factors that need to change in this market before we will regularly see any major changes in technology in buildings. These include traditional design methods, “old school” building and facility management, building complexity itself, limited liability for performance by designers and builders, and owners who are unwilling to pay for continual commissioning.

How might technology blow up these barriers? With the introduction of numerous forms of “always on” technology, the industry is heading for some really big changes and here’s some of what we’re seeing over the horizon.

New sensor technologies – Much like the human body with millions of sensors but only one brain, buildings are going to increasingly use more and more sensors as the cost of these sensors comes down and as they all become wireless.

Centralized Management – Building management is heading towards centralized multi-building operations centers. These centers will be manned by companies offering a bureau service to monitor building and equipment performance to large customers with buildings that are geographically dispersed and to respond to faults before anyone is aware of them.

Building Dashboards – Beyond the simplified building lobby screens that display energy use, building dashboards will increase in capability and be available to a wide cross section of building occupants such as tenants, apartment/condo owners, property managers, facility managers, visitors, floor wardens, managers and so on.

Performance Guarantees – If you want to design a building, there is a potential in the near future that you’ll have to ‘guarantee’ performance with at least some part of your design fee at risk. The U.S. General Services Administration has already done this with a new office building in the Seattle area.

Continual Commissioning – Savvy owners are likely to start paying engineers or more likely the systems integrators who originally integrated the building controls, to stay on with the buildings they design and continue to monitor energy use and water use vs. predicted performance.

If you develop, own or operate buildings, clearly now is the time to get back in the driver’s seat (or else you may end up as a bug on the windshield of progress). Rapid technological change is imminent and is surrounding us everywhere like a rising tide. If you are not prepared for this change, it has the potential to disrupt everything about your operations. Look out the real estate window for a moment and see what’s going on around us: Cloud-based software for practically any type of application, smartphones and tablets, mobile devices, mobile applications and the continuously moving yardstick of consumer expectations. The building industry simply can’t stay still forever. So, if you’re in the business, prepare for massive disruption!

4 thoughts on “Consumer Expectations to Cause Disruption in Building Design, Management”

Great article. I would agree that there will certainly be a demand from newly minted facility employees to keep up with the times. Even the not-so-new operator/manager will expect to have more up-to-date technology similar to what they enjoy in their consumer products.

But putting the human factors aside, what do you see as the main economic driver for the business itself to change. In your example of the Travel Agent industry, there was a middle-man that was unable to compete with the cost and convenience supplied the Internet. If the technology and enablers that you mentioned in the article are adopted, is there a similar high-cost, inconvenient middle-man that will be displaced by technology in this industry?

To put it another way, what is the financial inefficiency that the technology is going to cure? Or is it enough just to bring awareness and visibility to the inefficiency itself?

Yes, disclosure requirements, expectations, and the desire for accessibility are becoming louder driving factors, and technology is changing rapidly in the space, but it will be a more transparent and navigable path to getting projects done that will cause real disruption in the building industry.

Transparency will eventually rule the day and the battle is being waged between leasers and landlords. Currently every company is asking for Green Space but that definition varies. Does Green mean healthy or does Green mean Environmentally friendly? The answer is both. Currently if a building meets codes based on ASHRAE it is healthy and commerce and environmentally friendly because standards have risen dramatically in the past 20 years. But the elephant in the room is “was the building built to code and is it operated as it was intended to operate. You would think the answer is yes but this is not a given. The current best method to determine the answer to this question is to have a Building Dashboard for transparency of the operating efficiency of the building in the lobby. The sad news is that even in the LEED Green community the resistance was so dramatic that this feature was removed from the V3 requirement before they could be ratified by the members. This doesn’t mean that there were not supporters, just not enough.

A few cities across the nation are trying to get a look at Energy Consumption of Buildings for the first time in the history of the Electric Utility Industry. Energy Conservation and Disclosure porjects will continue the work started by DOE Energy Star Portfolio Manager and rate buildings by TYPE and USE to build a database of Energy Utilization. In some areas the EU for residential homes now has to be disclosed prior to closing.

This transparency will create a need for builders to meet standards or be held accountable.

But the real news is, as noted in the article, that we have the technology, probably for the first time realistically to monitor, measure and report the necessary data.

So the financial inefficiency is that the hidden cost of operations in the triple net lease is coming to light. Inefficient buildings are going to be downgraded by the already scalable building inventory. The utility which is fighting carbon pollution and probably taxes in the future is going to isolate bad actors and ultimately the code are not going to evolve around prescriptive design but around actual use.